May 2016

There’s a theory/urban legend that everyone is just six degrees of separation from knowing every other person on the planet. I prefer the Six Degrees of Kevin Bacon theory that every actor is six degrees (or less) removed from working with Kevin Bacon. For example, Sean Connery is two degrees from Kevin Bacon. Connery was in The Untouchables with Robert DeNiro who was in Sleepers with Kevin Bacon. We can play the same game of telephone with investment ideas, but this can play out like making a copy of a copy. Theranos, the Silicon Valley startup that set out to disrupt blood-testing, became a media darling under the assumption that everyone else had done the due diligence. The company got its start by raising money from the CEO’s daddy’s friends. Further fundraising rounds were based on the assumption that the investors in the previous round did their due diligence. The media…

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If cutting corners in business is bad, cutting corners when your business is selling sketchy loans means disaster as Lending Club CEO Renaud Laplanche just found out. The stock is down huge today and the CEO resigned in light of news that Lending Club didn’t deliver what it had promised to one of its clients. This was one of my fears when we were pitched several different peer-to-peer lending schemes. Lending Club bundled together loans and sold them to investors. Investors had very little ability to do true due diligence on the bundles and it looks like it tempted LC to stretch the truth on what it was peddling in one case. This example ticks several due diligence boxes for me. We like to see 3-5 years of live performance for a reason. Brand new companies or management teams need time to understand the reality of their investment environment, regardless of…